8
We use rolling returns to get a clearer understanding
of a fund’s performance. To assess rolling returns, we
start with the trailing decade or a manager’s tenure
on the fund. Then we look at performance over rolling
periods during that stretch. For instance, if we want to
look at rolling three-year periods over the trailing
decade through May
2013
, we start with performance
over the three-year period from June
2003
through
May
2006
, then July
2003
through June
2006
, and so
on through May
2013
.
Rolling returns can show how consistently a fund has
performed relative to its benchmark or category rivals.
They also help investors understand a fund’s risk/
reward profile. Has a fund’s performance zigzagged
between its category’s top and bottom quartiles,
and if so, why? If its rolling returns land near the cate-
gory average, is that pattern due to its strategy or
a sign of merely average execution? When used with
risk-adjusted performance measures such as the
Morningstar Rating for funds, rolling returns help in-
form what investors could reasonably expect from
a fund’s performance pattern going forward.
It’s helpful to look at other rolling periods, too. A
fund with
20%
annual turnover indicates an average
holding period of five years, so looking at five-year
rolling periods might be more appropriate. Looking at
10
-year periods can give a better sense of what to
expect from deeply contrarian managers. In this article,
we walk through several world-stock fund examples.
We’ve graphed the fund’s rolling returns and put
them next to their long-term trailing returns so you
can get the whole story.
Let’s Get Rolling
The rolling three-year returns for
Oakmark Global
OAKGX
reflect the fund’s fairly consistent rela-
tive performance over the trailing decade. Over that
stretch, its rolling returns landed in the category’s
top quartile
45%
of the time and in the second quar-
tile
48%
of the time. Skippers Clyde McGregor
and Rob Taylor favor stocks trading at deep discounts
to their estimates of intrinsic value. They’re no
dumpster-divers, however, and they generally opt for
companies with promising growth prospects. That
double-barreled approach helps avoid value traps and
builds a margin of safety into the portfolio.
The duo’s solid execution has kept the fund’s rolling
returns mostly out of the category’s bottom two quar-
tiles. However, periodic bumps are part of the
package, given a fairly concentrated portfolio and top
position sizes of
3
.
5%
–
5
.
0%
of assets. In
2011
,
several of the fund’s then-top holdings such as
Oracle
ORCL
,
Julius Baer
BAER
, and
Daiwa Securities
DSEEY
sold off, fueling the fund’s
11
.
6%
loss that year
and causing its three-year rolling returns to fall in
the category’s bottom quartile for several periods end-
ing in mid- to late
2012
. Rolling returns don’t cap-
ture the fund’s above-average Morningstar Risk over
the trailing three-year and five-year periods or
the fact that investors have been compensated for
that risk—those traits are reflected in the fund’s
4
-star Morningstar Rating.
Rolling Steady
The rolling three-year returns for
MFS Global Equity
MWEFX
land in the category’s middle two quartiles
60%
of the time, yet it’d be a mistake to dismiss the
fund as average. The fund has appealing defensive
characteristics. Managers David Mannheim and Roger
Morley stock up on higher-quality blue chips domi-
ciled in developed markets. As of March
31
,
2013
, only
8%
of assets were parked in no-moat stocks (those
without any sustainable competitive advantage)
versus the
MSCI
World Index’s
13%
. That stability-
oriented approach means the fund’s short-term
performance will likely lag when racier fare is rallying,
as in
2003
,
2005
, and
2009
–
10
, but it held up nicely
in
2008
and late
2011
.
The duo’s style has translated into less volatility over
the long haul. The fund’s Morningstar Risk-Adjusted
Returns over the trailing decade through May
15
,
2013
, land just inside the group’s top quartile, and its
On a Roll
Morningstar Research
|
Michael Herbst
